Hostile Resistance To Hedge Fund Activism

Target firms openly resist hedge fund activists about one-fourth of the time, via poison pills, lawsuits, and restrictions on shareholder actions. Target firm resistance is met with a significantly negative market reaction, reducing the initial positive reaction to activism announcement. Unless hedge funds counter-resist with a proxy fight or lawsuit, targets are less likely to accede to hedge fund demands, be acquired, or experience improved long-term operating performance compared to non-resisting targets of the same hedge funds. By contrast, when hedge funds counter-resist, target firm outcomes do not differ relative to non-resisting targets of the same hedge funds.